With backgrounds on the sell side and strong interests in math, it shouldn’t come as a surprise that both Cortney Swensen and JP Gagne switched to the buy side as fund managers for Thrivent Limited Maturity Bond Fund (THLIX).

“After earning my MBA, I worked on the sell side for a year, and quickly determined that the buy side was a better place for me with my math background in my previous career as an engineer,” said Swensen, who has managed the fund since 2020.

Gagne joined Swensen as a co-manager just a year later. “I've always had a strong math and analytical background, and I always used it in my own personal investing that I wanted to take to the institutional side for other investors,” he said. “I've loved every minute of it, and I've loved every challenge that's come with it.”

Swensen focuses on the corporate credit portion of the Fund. She looks for investment-grade corporates and high-quality, high yield. Gagne focuses on securitized bonds backed by interest-bearing loans like auto loans, student loans and mortgages.

Benefits of short-term investing

The high interest rate market is a great opportunity for investors to explore short maturity bonds, especially with the expectation that the U.S. Federal Reserve (Fed) may reduce interest rates two to three times in 2024. The Fund offers investors short duration fixed income exposure, making it less sensitive to interest rate changes.

“The demand for short-term investments is driven by the shape of the yield curve right now,” Gagne said. “October 2022 was the first time we saw the yield curve invert during this cycle. What that means is that the two-year yield is higher than the 10-year yield point of the curve. You can now buy a shorter duration asset that doesn't have the same risk profile as owning something that's 10 or 30 years long.

“These aren't normal conditions. We expect the yield curve to normalize at some point, meaning we will again have an upward sloping interest rate curve. But in the meantime, this is a great opportunity to lock in current yields at a much higher rate. Furthermore, if we expect that rates will eventually drop in the future, this will add price return to these short-term investments,” Gagne added.

Interest rate changes

Quickly rising interest rates of the past two years combined with this year’s anticipation of dropping rates keep Swensen and Gagne active in the Fund.

“As the market and interest rates continue to change, the biggest tool that we have is managing to a duration,” Gagne said. “In 2022 and 2023, when we knew that interest rates were going to continue to go higher as the Fed was hiking, we ran the portfolio shorter than our peers. We had more investments in the 1- to 2-year area and less in the 4- to 5-year area. Now, as the Fed is done hiking, we positioned the portfolio to be more nimble and duration-neutral. Therefore, it gives us the ability to adjust our investments as we see fit and as we get more clarity on what the Fed is going to do.

“I expect interest rates to be a positive influence on the Thrivent Limited Maturity Bond Fund in 2024. Even though we've seen a lot of rhetoric in the market that we're going to have rates higher for longer, we anticipate that at some point the Fed is going to reverse course and begin cutting rates. At that point, as interest rates come down, prices go up. So, in the Thrivent Limited Maturity Bond Fund, not only are you going to earn the current yield, but there's a potential to also have some price appreciation within the portfolio.”